The Bank of New York as Trustee Under the Pooling and Servicing Agreement dated as of November 30, 1994, Series 1994-D, Respondent, vs. Stephen D. Larson, a/k/a Steve Larson, a single person, Appellant, Bank One Milwaukee, N.A., Defendant.

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Minn. Stat. §480A.08, subd. 3 (1996).

STATE OF MINNESOTA

IN COURT OF APPEALS

C7-97-1736

E & H Earth Movers, Inc.,

Appellant,

vs.

Waland Companies,

Respondent,

Builders Mortgage Corporation,

Defendant.

Filed April 7, 1998

Reversed

Amundson, Judge

Dissenting, Short, Judge

Washington County District Court

File No. C6-97-1576

Robert J. Huber and Robert M. Hogg, Leonard, Street and Deinard P.A., 150 South Fifth Street, Suite 2300, Minneapolis, MN 55402 (for appellant)

Douglas J. Peterson, Newquist & Eckstrom, Chartered, Fridley Plaza Office Building, 6401 University Avenue North East, Suite 301, Fridley, MN 55432 (for respondent)

Considered and decided by Short, Presiding Judge, Amundson, Judge, and Harten, Judge.

UNPUBLISHED OPINION

AMUNDSON, Judge

Appellant E & H Earth Movers brought this action against respondent Waland Companies seeking foreclosure of a mechanic's lien on Waland's ten-lot residential development. Waland moved for, and was granted, partial summary judgment on its affirmative defense that the lien was invalid because E & H did not provide prelien notice to Waland. Because Waland's improvement involved more than four family units and was wholly residential in character, we conclude that Waland was not entitled to prelien notice. We reverse.

FACTS

Appellant E & H Earth Movers, Inc. (E & H), a family-owned construction company, has graded sites, built roads, and made other site improvements for residential and commercial developments since 1962. Waland Companies, a real estate developer and builder, builds and sells up to four residential houses per year.

Waland purchased forty acres of undeveloped land from Loren P. Seidel and Ellen A. Seidel for development as Long Lake Shores Addition. Intending to develop the property , Waland subdivided the land into ten residential lots and borrowed more than $1 million to finance acquisition.

Waland contracted with E & H to build a highway turn-lane into the development, a street to serve eight of the lots, as well as grade the lots for $74,998.75. To embody these terms, Waland drafted a 40-page contract. E & H then built the highway turn-lane, the road, and graded seven lots. In addition to the work outlined in the original contract, E & H built a driveway worth $7,052.77 and provided labor and materials for the installation of drainage pipe and other incidentals worth $11,324.

After a dispute arose over whether the drainage pipe was part of the agreement, Waland terminated the contract, claiming E & H was in default. E & H denied being in default, maintaining that the pipe was an agreed-upon extra to the contract. Nyhus Engineering, Waland's consulting engineer, approved payment of $73,574.13. Waland, however, has not paid E & H for any of its work.

E & H served and filed its mechanic's lien statement within 120 days after its last work on the property. Waland moved for partial summary judgment on its affirmative defense that the lien was invalid for lack of prelien notice. E & H argued that it was exempt from the prelien notice requirement under the exceptions provided by Minn. Stat. § 514.011 (1996). Specifically, E & H argued that the subdivision 4b exception applied because the improvement involved more than four family units and was wholly residential in character. The district court invalidated E & H's lien because, according to the district court, the exceptions did not apply. This appeal followed.

D E C I S I O N

On review of a grant of summary judgment, this court determines whether any genuine issues of material fact exist and whether the district court erred in its application of the law. Emison v. J. Paul Sterns Co., 488 N.W.2d 336, 337 (Minn. App. 1992). Statutory interpretation is a question of law subject to de novo review. Automated Bldg. Components, Inc. v. New Horizon Homes, Inc., 514 N.W.2d 826, 828 (Minn. App. 1994), review denied (Minn. Jun. 15, 1994).

Typically, the prelien notice requirement is interpreted in light of its statutory purpose of protecting "unwary homeowners from having to pay twice for a single improvement when a contractor fail[s] to pay its subcontractors." Emison, 488 N.W.2d at 338.

Here, it is undisputed that Waland knew about the possibility of liens when it drafted the contract. Unlike the fact situation in Emison, Waland was not exposed to the risk of paying twice for the same work. Additionally, "if a [statutory] construction is permissible that will sustain the lien, it is to be preferred to one that will invalidate it." Armco Steel Corp., Metal Prod. Div. v. Chicago & N.W. Ry. Co., 276 Minn. 133, 138, 149 N.W.2d 23, 26 (1967).

The lien notice statute provides:

The notice required by this section shall not be required to be given in connection with an improvement to real property consisting of or providing more than four family units when the improvement is wholly residential in character.

Minn. Stat. § 514.011, subd. 4b (emphasis added). This exception reflects the legislature's determination that real estate developers providing lots for more than four family units are sufficiently sophisticated that they do not need prelien notice. See Polivka Logan Designers v. Ende, 312 Minn. 171, 174, 251 N.W.2d 851, 853 (1977).

The dissent correctly states that no multiple unit building is permitted on the property as it is platted. That this invalidates the prelien notice exception is incorrect. Read that way, the exception would only apply to developers of condominiums and apartment buildings. No support is offered to show condominium or apartment building developers are more sophisticated and therefore more likely to know about the possibility of liens than residential real estate developers improving multiple single-lot developments. Developers that improve "more than four family units," whether condominium developers, apartment building developers, or even modest builders, are held to the same higher standard that includes the prelien notice exception.

Waland asserts that because it is a small business, it is entitled to the protections of the prelien notice requirement. Agreeing with Waland, the dissent portrays Waland as a modest "ma and pa" construction company. This, however, fails to acknowledge that Waland was sophisticated enough to draft a 40-page construction contract with E & H, obtain governmental approval for the development, and to borrow more than $1 million to finance the development. Waland does not claim that he was unaware of the possibility of liens. The record reflects the contrary; Waland was clearly aware of the possibility of liens.

The legislature has recognized that real estate developers, as a class, are sophisticated businesses aware of the possibility of liens and, therefore, do not need the protection of prelien notice. See Polivka, 312 Minn. at 174, 251 N.W.2d at 853 (stating that subdivision 4 is "the legislature's designation of larger businessmen who do not require such protection."). The district court's interpretation contradicts the intent of both the mechanic's lien law and the prelien notice requirement. See Armco Steel, 276 Minn. at 137, 149 N.W.2d at 26 ("Mechanics lien laws are remedial in nature, and we have consistently held over the years that they should be liberally construed so as to protect the rights of workmen and materialmen who furnish labor and material in the improvement of real estate.") and Polivka, 312 Minn. at 173-74, 251 N.W.2d at 852-53 (Prelien notice requirement "was intended to protect homeowners and small businessmen who out of ignorance might be forced to pay first the contractor and then the subcontractor.").

The district court improperly held that a single-family residence is not a family unit. Because Waland's development is platted for ten single-family residences, E & H's work is in connection with an improvement consisting of or providing more than four family units and wholly residential in character. E & H, therefore, was not required to provide Waland with prelien notice.

We need not address Waland's motion to strike E & H's assertion that Waland is an owner-contractor because regardless of whether Waland was an owner-contractor, E & H was not required to provide prelien notice to Waland.

Reversed.

SHORT, Judge (dissenting).

I respectfully dissent. E & H Earth Movers is not entitled to the protections of the mechanic's lien statute because it failed to give Waland a prelien notice. See Minn. Stat. § 514.011, subd. 1 (1996) (stating person who fails to provide prelien notice shall not have lien and remedy); Nasseff v. Schoenecker, 312 Minn. 485, 491, 253 N.W.2d 374, 377 (1977) (holding failure to give prelien notice defeats mechanic's lien). The prelien notice is not a mere technicality that can be overlooked. Merle's Constr. Co. v. Berg, 442 N.W.2d 300, 302 (Minn. 1989).

E & H argues it is exempt from the prelien notice requirement under exceptions provided in Minn. Stat. § 514.011, subds. 4b, 4c (1996). However, the record demonstrates: (1) E & H contracted for a subcontractor to grade and construct street and drainage systems for ten single-family residential lots in the Long Lake Shores Addition; (2) no multiple unit building is permitted on the property as it is platted; (3) for nearly six months, E & H imposed a lien against property owned by the original landowner (Seidel) and property owned by Waland; (4) E & H failed to give prelien notice to either Seidel or Waland; and (5) Waland is a small "ma and pa" construction company that builds "perhaps four homes a year." Given these facts, E & H did not improve real estate consisting of multiple dwellings nor real estate that is nonresidential in use. See Minn. Stat. § 514.011, subd. 4b (establishing exception to prelien notice requirement for multiple dwellings); Minn. Stat. § 514.011, subd. 4c (creating exception to prelien notice requirement for improvements to nonagricultural and nonresidential real estate); Polivka

Logan Designers, Inc. v. Ende, 312 Minn. 171, 176, 251 N.W.2d 851, 854 (1977) (concluding exceptions to Minn. Stat. § 514.011 should be narrowly construed); Christle v. Marberg, 421 N.W.2d 748, 751 (Minn. App. 1988) (holding street and drainage areas are merely incidental to residential development and do not constitute a nonresidential use for purposes of Minn. Stat. § 514.011, subd. 4c); see alsoKorsunsky Krank Erickson Architects, Inc. v. Walsh, 370 N.W.2d 29, 33 n.2 (Minn. 1985) (holding prelien notice requirement protects owners of certain residential and agricultural real estate). Under these circumstances, the trial court properly invalidated E & H's lien and granted judgment for Waland.